Friday, June 14, 2013


Promoting Financial Inclusion can be made through Innovative Policies in partnership with efficient cost management and product designing using target costing keeping consumers purchasing parity.
Cost management is an old term where the most common meaning derived from this is the saving cost only. But with changing times it has been modified and more modification resulted to higher research on cost management techniques and strategies.

But the most heart broken part is that we have done extensive research is developing new set of strategies and techniques but we failed in recognition of the said. Now we feel that we should use those extensive marketing of those research strategies and techniques in bringing financial inclusion to achieve the ultimate goal of inclusive growth in India.

In order to bring the demand from rural India particularly the low wage category of consumers we need to design products keeping the target of consumer’s purchasing power. Now Product designing alone will not be enough to bring forth the consumption we need pricing mechanisms designed with target costing to achieve the profit growth as well as ROI.
One point is clear that product designing have to be made keeping the consumer purchasing capacity but what about the product cost designing and pricing mechanism of the products depending on consumer purchasing parity.

I will like to bring forth the ECOFIN (Economics Cost Management and Finance) part of product desigining mechanism based on target cost management.

Market-driven target prices have to create on the basis of target costing. Target costing, although its concept is used throughout the product life cycle, is primarily used and most effective in the product development and design stage. This have born out of the market-driven philosophy where target costing is based on the price-down, cost-down strategy, which has allowed companies to win considerable share of their respective markets. This policy fits well in rural and low wage income category people.

The companies should place more emphasis on their relative position in the market and product leadership. Since it have been observed in various research programmes that more than 80% of product cost is already determined by the time product design and processing is complete, cost management must start (and done substantially) at the design stage. Designing products for the low wage income market and rural India where access to financial products like Insurance, Mutual Funds followed with FMCG products, various Bank Loan schemes backed by proper governance needs target costing process.

When the product designing cost will be well designed then only private equities and venture capitalist will find the future of their investments to grow. Since if the product is not designed as per the consumers keeping the cost compositions in mind ROI attract more investments.

The process of implementation of target costing techniques in product designing will be brought by the management accountant and not by another professional on this planet. Now question might come in to the mind why he and no one else to replace him. Since specialist can from various industrial professions can bring Financial Inclusion. So Management Accountants are the specialist in this case of designing product followed with target costing.

Factors to be kept in mind when the target costing is applied in product designing are:

• Should the company be making this kind of product?

• What constraints need to be applied in the design stage?

• Is the market demand consistent with our projections?

• Can we achieve the determined return in this competitive of a market?

When we get the report regarding the above queries we will proceed with the next stage of applying target costing on product designing.
Now when Insurance companies and mutual funds and other financial weapons will placed on the table of low wage income group or rural India we need to design the products following the process which will be explained in the next couple of lines. But at the same time I would like to tell my readers that there is no predefined technique of doing designing of products applying target costing. The cost management subject is unique in one way from all other courses on this earth that is it varies from industry to industry product to product. Its not like taxation which remains same for each company with a predefined format.
The Process:

Market Driven Selling Price - Desired Profit = Target Cost.
In the target costing model, costs are not the driver rather they are driven. The market sets the price, management sets the profit margin, and the difference becomes the allowable cost—cost defined and constrained by price realities and profit goals. New and increasingly necessary, target costing abides to the following logical flow and procedures:
• Developing selling price for the product:

• Establishing a Target Profit for the Product

• Determine the Target Cost

• Perform Functional Cost Analysis and/or Value Engineering

• Determine the Cost Estimate

• Decision: is the Cost Estimate on Target?

• Make the Final Decision .
When all the above components are mixed up then only we get the product designed applying target costing. If we want financial inclusiveness to bring in rural and low wage income group manufactures of all the products across the industry needs a radical change in product creation.
Product designers can no longer produce and market large volumes of standard products with a relatively stable market and technological climate. There has been a shift toward unstable, rapidly changing markets and technologies. To implement market-driven management across the organization, measurement and cost control systems must be designed to motivate the desired consumer-oriented behavior. Cost management methods must help with the production of new products that meet customer demands at the lowest cost.

Banks Insurance companies, FMCG, Hospital industry all needs to design products following the application of target costing and all the above mentioned and upcoming techniques of research which will be presented to all of you in the next coming articles.

Many of readers must be having a doubt in their mind why I did not explain each of the details of the process which have evolved out of the research of product designing applying target costing.

I don’t want my readers to be confused and overloaded with analysis. The subject and the process is complex and needs to be presented for fluid understanding in fragmented parts.

I promise my readers that in my next article I will give a brief analysis of the process discussed in this topic. The path of INCLUSIVE GROWTH lead by FINANCIAL INCLUSION is not an easy process. Its as difficult to measure Indian economy and as easy to understand the growth.

Friday, June 7, 2013

Buy Europe by China…Speculators Jumps

European economies are opening up the gates for selling their assets to the Chinese economy. The Chinese government has taken substantial measures to boost corporate investment in Central and Eastern Europe. Debt crisis of Europe has changed landscape of business opportunities for the global economy. Chinese investments are finding the ways of investments in particular in fields such as infrastructure, energy and high-tech. Southern Europe’s cash-strapped governments are wooing wealthy home buyers from overseas by offering so-called golden visas to purchasers of high-end properties. Portugal, Greece, and Cyprus are offering temporary-residency permits to foreign investors, and Spain is about to kick off its program. In Portugal buyers must pay a minimum of €500,000 ($670,000) for a property to be eligible for a five-year residency permit. A total of 102 visas has been granted since the program began last year, according to the Portuguese Immigration and Borders Service where as Cyprus is already “booming with Chinese investors. In my research I have found that every day there are more than 20 Chinese nationals landing in Cyprus to search for property. The falling economy of Europe is finding its growth of property market from Chinese buyers hence those who are betting highly that the European economy is on the path of growth are just providing half information. While some wealthier European countries also grant special resident visas for investors, most require larger outlays and may not involve real estate. The U.K., for instance, grants special visas to individuals with at least 1 million pounds ($1.6 million) to invest in the country. Buyers from mainland China typically look for immigration opportunities in southern Europe for their families because of the drop in real estate prices. It is well clear that china is the king of the world economy in terms of monetary and strategy strength wise. But I find that Europe property market growth cannot be treated as n economic growth prospects. Its just an deal making policy which is going for an temporary phase. Rich Chinese nationals are investing and are doing shopping for the global assets.


INCLUSIVE GROWTH is the word which is often heard and understood less by majority. I will not get into complex explanations of the above word meaning. In simple words Inclusive Growth by its very definition implies an equitable allocation of resources with benefits accruing to every section of society. It should be focused on the indented short and long terms benefits and economic linkages at large and not just equitable mathematically on some regional and population criteria. But the one of the major component of achieving this growth we need a FINANCIAL INCLUSION.
Now again many of my readers are now confused that what is this new concept of FINANCIAL INCLUSION. Again in simple words it nothing but all financial bodies coming together and spreading finance access to each and every corner of India. It does not mean opening bank account or making huge growth in disbursement of loans. It’s the process of reaching financial weapons to all Indian across the country.

In order to achieve financial inclusion, there needs to be a collective and timely action by all players in the financial sector. The players include the Reserve Bank of India (RBI), National Bank for Agricultural and Rural Development (NABARD), banks, regional rural banks, cooperatives and micro-finance institutions. When we talk about economic growth we should keep in mind that it cannot achieved on the basis of some large or medium types of companies. We need to change our focus from urban growth to rural India.

Providing access of financial instruments should be one of the key ingredients of the financial inclusive. We need to use the potentiality of India’s huge untapped population. If we look into china which have the highest population have been able to convert its weakness in to advantage.

In most of the cases people with low income do not qualify for a loan the loss of daily wages for a low income individual. Most of the excluded consumers are not aware of the bank’s products, which are beneficial for them. Getting money for their financial requirements from a local money lender is easier than getting a loan from the bank. Indian financial system needs to change the process to unleash the rising and controlled demand rising from this segment. Most of the banks need collateral for their loans. It is very difficult for a low income individual to find collateral for a bank loan. But now banks are slowly identifying but still many of them are left out from the race. Till now banks have tried to do:

• The RBI has simplified the KYC (Know your customer) norms for opening a ‘No frill’ account. This will help the low income individual to open a ‘No Frill’ account without identity proof and address proof.
• Banks are now permitted to utilize the service of NGOs, SHGs and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent models.
• Banks are now using new technologies like mobile phones to reach low income consumers.
• Banks needs to design their products for the low income group so as to influence the untapped demand.
• Banks also needs to develop Information Technology infrastructure to develop and handle the mass of villages and low income group.

Above all the bank and other financial bodies needs to educate the low income group or in those places where financial access is new concept. This will also bring a radical change for the huge low educated group of people residing among us.Now all these were related to financial products bringing financial inclusiveness.

But we still have left many parts untouched where financial inclusiveness can be brought and Indian economy can be strengthened further.

• Indian infrastructure needs to focus on renovation of Indian villages just like china did in its own villages. In china we find that compared with the wave of city renovations five years ago, renovations now are taking place mainly in second-tier or third-tier cities which are political and economically less important. Villages are being renovated and huge amount is being spent by the infrastructure companies. Similarly if Indian infrastructure companies go for a similar process then we will get a huge untapped potentiality of infrastructure development. FDI investments in these untapped areas will be a very attractive. I think my readers can judge that if renovation of infrastructure in Indian villages is being made then the type of growth and ROI that will be generated from here will last for at least for the next 2 decades, may be beyond that. Electricity is one of the rising hot sector which will be of great help once it comes into play. Power industry will get the next decade of growth from this segment.

• Apart from bank, insurance companies will find the next huge untapped growth. Since the demand for insurance particularly for this segment is highly required. The problem of low wage income followed with insurance can be designed in such a way that a labor who is earning Rs.3000 per month can afford to have a insurance of Rs.100 per month. The most important part to bring forward the untapped growth of insurance in this segment is designing of products. If the insurance products are designed in such a way, which will become easy to accept for this segment of people.

• We all know that when finance becomes easy access demand start picking up for mass of people. FMCG product will find the next untapped growth in this segment. We already find that Indian FMCG companies are focused towards this segment. But what we need to find is that expansion in these areas followed with product designing. Cost competitiveness should be another aspect to be maintained in order to make the product presence in every home or village.

• Private equity and venture capitalist needs to identify all these areas to exploit the untapped growth of entrepreneurship of Small and Medium Enterprise. Talent and the desire to do something is life is higher in this segment. If some one exploits them with proper education and technical knowledge we will find a large number of future industrialist and business ventures taking control of the future of Indian economic growth. The private equity and venture capitalist invest in schools and colleges and the Indian corporate law is being designed in such a way that such investments rules are also designed for schools and colleges then we will find the first nation to develop such an policy and simultaneously we will get a radical new age of education for this segment.

• Hospitality sector also find and the growth in this sector but again we need to design products and costs. High cost often makes the growth in this sector stagnant or not to the expected ROI.

• Indian Information technology sector also finds a huge pool of ROI. When demand and access of finance will be made and in the process too will require IT involvements. Information Technology policies should be designed with the growth of the industry as India looks to move up the value chain from business processing to knowledge processing in this segment. Introduction of computers in Indian villages have already being introduced but the growth is yet to be achieved. The main draw back is focus from the private end and more on the public end. We should bring both in to the party to feel the music.

Financial Inclusion does not mean financial support. It means a all the sectors of Indian economy coming together to bring the radical change and growth in the untapped areas. Slowly India will witness stagnant growth since we are all focusing on urban growth and development. We should not forget that as per the Indian Census of 2001, state that 74% of Indians live in 6,38,365 different villages. India has about 500,000 villages that are scattered throughout the country, where the population varies accordingly. Some villages have a population less than 500, while 3,976 villages have a population of more than 10,000 people.
We are having one of the strongest economies in world provided if we identify and unleash the pool of demand lying idle in these. No winds of recession can blow off the burning fire of Indian villages’ untapped economic growth.
In order to attract private equity and venture capitalist in this segment Indian bank and other financial bodies needs to develop the easy access of finance. We are suffering with the problem of declining exports. We even don’t know when the demand in west will pick up but we need to change our focus from that to our own untapped potentiality.
Just imagine that if 50% of the Indian villages’ population opens bank accounts then what type of growth Indian banks will find. Rest I will leave on my readers to think and imagine the growth form other sectors can achieve.
In my next article I will bring forth the cost and designing process of each sector which will help Indian economy to achieve FINANCIAL INCLUSIVENESS.

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